The fourth and final phase of the Securities and Exchange Board of India's (Sebi) new peak margin rules went into effect from September 1. CNBC-TV18’s Prashant Nair takes stock of how margins are collected both in the cash and the futures and options segments as things stand right now.
Margin requirement in cash segment
Suppose you are buying 10 shares of ITC at Rs 210 per share. In the case of ITC, for both intraday and delivery trades undertaken, the applicable margin now is 20 percent. The total value of the transaction is Rs 2,100, 20 percent of which is Rs 420.
Now before September 1, 2021, as per SEBI’s peak margin norms, brokers used to collect 75 percent of the 20 percent as margin - which was Rs 315. That 75 percent has now become 100 percent from September 1, 2021. This means the entire Rs 420 must be collected by the brokers. The extra margin you pay to buy 10 shares of ITC is Rs 105.
Undertaking sale of shares
Again, in the cash segment - do you need upfront margin to sell shares? Clients having free shares that are unpledged shares in their demat accounts are permitted to sell those shares. Shares are then moved from client's demat account to early paying account the very same day, which means the need for upfront margin is circumvented. This is subject to the client giving the power of attorney to the broker.
Margin requirement in F&O segment
In the futures and options segment, again using ITC as an illustration, suppose you buy one lot of ITC shares - which is basically 3,200 shares and you transact at Rs 210 per share. The margin for ITC in the F&O segment is 22.02 percent.
The total value of one lot is Rs 6,72,000 - 22.02 percent of which is Rs 1,47,974. Now, pre-September 1, brokers had to collect 75 percent of this 22.02 percent which here works out to Rs 1,10,981.
Post-September 1, brokers will collect the full 22.02 percent from you which is Rs 1,47,974. The difference between pre-September 1 and post-September 1 is Rs 36,993.
The margin rules you should know
The brokers' associations, the exchanges and Sebi - all have been in consultation and discussion on what should be the appropriate margin structure for a while.
Brokers argue that they should have some leeway or discretion in running their business in terms of how they choose to treat certain clients. The regulator is clear on the rules being there to protect the small investor.
This piece has not gone into the ‘for’ and ‘against’ arguments. The idea was to present how the margins system works here and now as things stand.